Oct. 17 (Bloomberg) -- Finnish Prime Minister Jyrki Katainen said any financial assistance for Spain would stop short of a full bailout, as French President Francois Hollande backed the country’s demand for clarity over European aid.
European Union leaders must show solidarity should Spain request funds, though assistance could take the form of a “precautionary” program, Katainen said today at a conference in Bucharest. Hollande underscored a divide with Germany as government chiefs prepared to gather for a summit in Brussels tomorrow, saying that measures taken by Spain in return for any help should be laid out in detail.
“If Spain decides to ask for some sort of bailout, then Europe should be ready to act -- and I’m sure they will not need a full program like Ireland or Portugal, and instead they might need some sort of a precautionary program,” Katainen said in an interview in the Romanian capital. “The main focus now should be that Spain remains in the market and gets funding.”
The shape of any bailout for Spain is crystallizing as policy makers try to prevent the country from disrupting the calm that has descended on markets three years after the 17-nation euro bloc’s budget crisis first started. With EU leaders set to convene, the French president said they need to forge clarity on the issue.
“Spain needs to know the precise conditions under which it would receive financial help,” Hollande said in a joint interview with six newspapers. Chancellor Angela Merkel’s government believes that terms should be negotiated once a request is made, an aide told reporters in Berlin today.
By throwing his support behind Spanish Prime Minister Mariano Rajoy and calling for budgetary easing from countries that can afford it, Hollande is setting out a challenge for Merkel similar to the one he made at the last summit in June.
Since then, turmoil across the region’s bond markets has eased after the European Central Bank offered to buy the bonds of struggling governments and the euro area set up its 500-billion euro ($656 billion) permanent rescue fund.
The yield on Spain’s 10-year government bond today dropped 29 basis points to 5.51 percent at 2:45 p.m. Paris time after Moody’s Investors Service cited the ECB’s move as a reason to keep its investment grade credit rating on Spain. The yield climbed above 7.6 percent in July.
The rate on Italian debt fell 11 basis points to 4.82 percent and the euro rose to a one-month high of $1.3172.
While Rajoy has said Spain won’t request aid until the terms are clearer, two German government officials said today it’s not possible at this moment to say what those conditions would be.
Hollande said in his interview that Spain, like Portugal, is “paying dearly” for the mistakes of others. He predicted that the worst of the sovereign debt crisis is over because speculation about a possible break-up of the single currency has abated.
Greece, which requires funding in coming weeks, should receive it without signing up to conditions beyond which Prime Minister Antonis Samaras has already committed it, according to the French president. He didn’t say whether the country should receive additional funding or more time to repay its debt.
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